James R.G. Cook

James Cook is a partner at Gardiner Roberts in Toronto and has been with the firm since he articled there in 2002. As a litigator in the firm’s Dispute Resolution Group, he has experience in a broad range of commercial, real estate and professional liability litigation. Phone 416-865-6628; email jcook@grllp.com. This article is provided for educational purposes only and does not necessarily reflect the views of Gardiner Roberts LLP.

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QUICK HITS:

• A real estate agent provided a rough estimate of property values to a client going through a separation, but the client later felt it was too low and sued the agent for negligence. 
• The agent argued that the client received what she paid for and that the difference in cost between an opinion of value and a formal appraisal should have been understood. 
• The court agreed, dismissing the claim and emphasizing that the client could have obtained a more precise appraisal by paying a higher fee.

Real estate agents are often asked by clients to assess the value of a property. There is a significant difference between an opinion of value as determined by an agent and a formal appraisal prepared by a certified appraiser, including the time and costs involved. Depending on the circumstances, a client may need a more expensive appraisal rather than relying on a rough ballpark estimate provided by a real estate agent.

Opinion of value vs. formal appraisal

In Spencer v. Sutton-Harrison, the plaintiff and her husband owned six parcels of farmland ranging in size from 46 to 160 acres. The plaintiff telephoned her long-time real estate agent in March 2018 and informed him that she and her husband were separating and she needed to obtain the value for the six parcels of land.

The agent explained that there is a difference between an opinion of value, which might cost about $300, and a formal appraisal which would cost between $2,000 to $4,000. The plaintiff asked the agent to prepare an opinion of value in respect of six parcels of land.

Background

In April 2018, the agent prepared an opinion of value which valued each of the six parcels ranging between $200,000 and $465,000, for a total value of approximately $1.4 million. In doing so, he looked at the assessed values of the six parcels and perhaps one recent sale of local farmland. The agent emailed the opinion of value to the plaintiff’s family law lawyer, who was handling her separation.

The plaintiff then entered into a separation agreement with her husband. The separation agreement listed the six parcels and said that the two spouses owned the parcels as joint tenants. It mentioned that the plaintiff’s husband would pay her an “equalization payment” and that her interest in the six parcels was “taken into consideration when reaching agreement on the quantum of equalization payment due and owing” to the plaintiff. 

In November 2018, the plaintiff advised her agent that two of the six parcels, which had been assessed at a combined value of $360,000, were listed for sale. The plaintiff subsequently asked her agent to prepare a further opinion of value of the two parcels.

The agent’s opinion was that the combined value of the two parcels was between $570,000 and $595,000 (up from $360,000 in April 2018). The agent emailed a copy to the plaintiff’s family lawyer in January 2019.

The two parcels were sold in February 2019 for $600,000.

Plaintiff’s dissatisfaction and lawsuit against agent

The plaintiff came to feel that the agent’s opinion of value was much too low, and she sued the agent and his brokerage for negligence.

In the course of the litigation, the plaintiff hired a certified appraiser who reviewed the agent’s opinion of value, produced a formal appraisal (which included photos, maps, charts and other materials), and concluded that the agent’s opinion was deficient in various ways. The appraiser felt that the six parcels were worth over $1.8 million.

At trial, the plaintiff argued that her real estate agent had violated the standard of care required by the Realtor Code of the Canadian Real Estate Association (the “code”). In particular, she argued that he failed to enter into a written agreement with her as required by the code; that he failed to deal fairly with her as a client; and that the code required him to disclose all information, which he failed to do.

The Realtor Code 

The plaintiff argued that due to the defendants’ breaches of the code she had suffered damages in the amount of half of the difference between the OOV ($1.4 million) and the formal appraisal (over $1.8 million). The “half” was based on the principle that family property is generally divided equally between former spouses/partners after separation.

In the trial judge’s view, however, the plaintiff got exactly what she paid for. Notwithstanding that she was neither a realtor nor an appraiser, she should be treated as a reasonable consumer. A reasonable consumer would have realized that a $3,000 formal appraisal would be substantially different from a $300 opinion of value and that they would have governed themselves accordingly. 

For the low price of $300, the plaintiff got a quick and rough ballpark set of estimated land values; even if the values were at the low end of the ballpark, that did not constitute negligence.

The agent’s evidence was that he told the plaintiff that, as a realtor, he could only provide an opinion of value and that he was not qualified as an appraiser. He said that he made the plaintiff aware of the difference in cost between an opinion of value and a full-blown appraisal, which would likely cost several thousand dollars. 

His evidence was that the plaintiff did not have or want to spend that amount of money for an appraisal. His text messages to the plaintiff confirmed that he was providing an “opinion of value in today’s market.” The opinion of value itself was a short document on the brokerage’s letterhead and marked: “RE: Land opinion of value.” 

The plaintiff confirmed during her examination that the agent said she would probably be better off getting an appraisal. While she denied understanding the different amount of time that would be involved in preparing an opinion of value and an appraisal, she reluctantly admitted that she was at least aware there was a price difference between the two types of reports and that an appraisal would be prepared by a person with “more experience and more qualifications.”

While the code is a useful tool in determining what a reasonable realtor should do, it is not a codification of the law of negligence but rather could fairly be described as “a summary of best practices for diligent Canadian realtors.”

Establishing negligence and damages

In the circumstances, the plaintiff failed to establish that the agent’s allegedly negligent conduct was the cause of any damages. She failed to show a connection between the opinion of value and what she had obtained as a result of the separation agreement with her husband. The portions of the separation agreement introduced as evidence at trial mentioned an equalization payment but did not mention the amount of that payment. Even though all realtors have a duty of care to their clients, and the standard of care is that of a reasonable realtor, the tort of negligence also requires damages: “There is no breach without proof of consequential damages.”

Further, prior cases have shown that there may be legitimate differences, even large differences, even between formal appraisals since property appraisal is not an exact science: Royal Bank of Canada v Westech Appraisal Services Ltd. The fact that a plaintiff can obtain another appraisal much higher than the appraisal provided by a defendant does not mean that the defendant was negligent and does not mean that the quantum of damages is the difference between the two appraisals. The plaintiff had an independent family lawyer and could have challenged the values before agreeing to the separation agreement.

“At the end of the day, as noted by the trial judge, one pays more for services of higher quality: ‘In a capitalist society, it is accepted that one generally gets what one pays for.'”

The plaintiff’s claim for negligence was therefore dismissed.

At the end of the day, as noted by the trial judge, one pays more for services of higher quality: “In a capitalist society, it is accepted that one generally gets what one pays for. ” 

Given that the plaintiff was aware of the huge price difference between an opinion of value and an appraisal, a reasonable consumer in her place would have realized that a $300 opinion of value would be a rough “ballpark” estimate of the values of the six parcels and that for an extra few thousand dollars, she could have obtained a much more precise estimate in the form of an appraisal from a certified appraiser. 

She would have been better off had she done so rather than suing her agent for negligence. 

James R.G. Cook

James Cook is a partner at Gardiner Roberts in Toronto and has been with the firm since he articled there in 2002. As a litigator in the firm’s Dispute Resolution Group, he has experience in a broad range of commercial, real estate and professional liability litigation. Phone 416-865-6628; email jcook@grllp.com. This article is provided for educational purposes only and does not necessarily reflect the views of Gardiner Roberts LLP.

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A: Getting sued by a client. We all fear lawsuits because of what a lawsuit implies: Poor customer service; lack of knowledge; and overall failure to do what’s right and ethical.

Q: What’s a growing trend?

A: Clients suing.

Agents are faced with managing numerous details, multiple parties and valuable assets. These hurdles become grueling mountains to climb when you throw in rushed time lines, emotions and fear of losing the deal. It’s no wonder mistakes happen and clients sue.  Having said that, lawsuits are not inevitable if you know the most likely reasons you’ll get sued and how to keep yourself from making fatal mistakes.

Here are the top three reasons why you’ll get sued.

1. Failure to disclose property defects

Yes, we all want to get a deal done quickly, as well as make sure our clients are happy with the price and expediency. But, a great price and a quick close won’t necessarily bar you from facing angry clients. Especially if you forget to fully disclosure all latent defects.

The numbers don’t lie: you’ll be the first to get served with legal papers after a deal closes if your client or the other party discovers defects. Defects range from improvements without permits to noises, stigmatized properties or nuisances.

“But, I didn’t know, so I’m not responsible!”, you’ll claim. Sorry, that’s not a defence. The threshold to prove that you were negligent isn’t that you did know, but that you should have known. After all, aren’t you supposed to be a real estate professional?

2. Breach of duty and negligence

If you’re an agent who “dabbles” in different asset classes or locations, be warned. You might be breaching your duty to your client and exposing yourself to claims of negligence.

Here’s why: your client places a high level of trust in you. They believe that you have the expertise you claim and “suggest” by taking on the deal. And if you don’t and if you make a negligent mistake –- even if your intentions were good — then be prepared for a fight in the courtroom. The problem with negligence claims is that it’s difficult to determine if you’ve acted reasonably. This means that, even if you weren’t negligent, you’ll still face a lawsuit and be left with a soiled reputation.

3. Giving quasi-legal advice

Every deal requires legal advice, especially since we’re moving away from non-binding offers to binding leases masquerading as offers. Not to mention, our increasingly litigious society calling for an extra “layer” of protection by way of a legal review.

Despite the real risk facing agents – and the fact that agents are signing up their clients to binding agreements without proper advice – agents don’t want to get lawyers involved. They fear that lawyers will kill the deal and slow the process.  So, the agents offer some general advice and don’t encourage their clients to get a quick legal review. After all, you’ve been doing this for years and you know more than lawyers.

Such an approach is not only problematic for the agent’s reputation, but also his commission. I’ve witnessed many deals dying because buyers, sellers, landlords and prospective tenants use the “we didn’t get legal advice” excuse to get out of deals. And some unscrupulous clients then point the finger at the agent, claiming that they never advised them to get the advice they need.

What can you do to protect yourself?

The most common cause of lawsuits is assuming you know everything and subtly putting your interests ahead of others.

There are three simple panaceas to this litigation cause:

• You can’t learn what you already know: Remain humble. Neither you nor I know it all. The most dangerous people are those who think what they learned in the past holds true today. It simply doesn’t: laws change, clients change, communication standards change and the product changes.
• Don’t stop learning: Agents must constantly educate themselves if they want to call themselves experts. Their knowledge should not only be about local rates and sale prices, but also the potential issues that may arise, such as structural and potential legal threats. Various bodies such as your real estate board, the Real Estate Institute of Canada and Institute of Real Estate Management, the Urban Land Institute (ULI) and the Society of Industrial and Office Realtors (SIOR), offer excellent programs and designations to stay on top of all of the changes in your industry.
• Get a professional involved early: always recommend that professionals get involved early, before anything is “firm” and make this recommendation in writing. Getting the professionals involved early will ensure that you avoid wasting your time negotiating certain points that simple won’t work from a legal, financial or logistical perspective. My experience shows that advice on sticky issues early in the process always helps to close the deal faster because everyone is working in tandem and major headaches are anticipated and prevented.

These solutions are so simple, yet rarely followed. If you don’t take a moment to protect everyone’s interests -– including yours –- then you’ll likely face a disgruntled client and a lawsuit. After all, it’s always better to have no deal, than a lawsuit and no deal.

Natalka Falcomer

Natalka Falcomer is a lawyer, real estate broker and Certified Leasing Officer who started her real estate career in private equity. She created, hosted and co-produced a popular legal call-in show on Rogers TV and founded and recently sold Groundworks, a firm specializing in commercial leasing law. She is currently the Chief Real Estate Officer of Houseful.ca, leading the development and expansion of the company’s personalized home buying and selling experience for the Canadian market. She sits as an advisor on NAR REACH Canada and is the former multi-year board member of the Ontario Trillium Foundation.

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